Past Cases

Bear Stearns Mortgage Pass-Through Certificates Litigation

Status Past Case

Practice area Securities Litigation & Investor Protection

Court U.S. District Court, Southern District of New York

Case number 1:08-cv-08093-LTS


On August 5, 2016, Judge Laura Taylor Swain of the United States District Court for the Southern District of New York issued an order approving the distribution of net settlement proceeds to class members in In re Bear Stearns Mortgage Pass-Through Certificates Litigation, Case No. 1:08-cv-08093-LTS (S.D.N.Y.). This order came after the Court issued an order and final judgment on May 27, 2015, granting final approval to a settlement in which J.P. Morgan Chase & Co., which had purchased Bear Stearns in 2008, agreed to pay $500 million in cash, plus up to $5 million in expenses, to investors led by a group of pension funds. The claims against Bear Stearns arose from its sale of $27.2 billion worth of mortgage-backed securities leading up to the U.S. housing and financial crises of the early 2000’s.

The settlement finally resolves claims that Bear Stearns violated federal securities laws by selling certificates backed by approximately 71,000 largely “Alt-A” mortgages in 22 offerings from May 2006 to April 2007. Investors alleged that the offering documents contained false and misleading statements about the underwriting guidelines used by Bear Stearns’ EMC Mortgage unit, Countrywide Home Loans and other lenders, and the accuracy of associated property appraisals.

Appointed Lead Counsel in December 2009, Cohen Milstein represents Co-Lead Plaintiffs the New Jersey Carpenters Health Fund, the Oregon Public Employees Retirement System, and the Iowa Public Employees Retirement System. The Defendants named in the lawsuit include Structured Asset Mortgage Investments II, Inc. (“SAMI”) and Bear Stearns Asset-Backed Securities I LLC (“BSABSI”), certain of their officers and directors, Bear Stearns Cos., Inc. (“BSC”), J.P. Morgan Chase, Inc. (“JPM”) as successor in interest to BSC, the Underwriter of the Certificates Bear Stearns & Co., Inc., the issuers of the certificates and the ratings agencies who rated the certificates.

Case Background

This class action securities lawsuit was brought on behalf of purchasers of Mortgage Pass-Through Certificates issued by SAMI and/or BSABSI (the “Certificates”) pursuant and/or traceable to false and misleading registration statements and prospectus supplements issued between March 2006 and September 2007 (collectively, the “Registration Statements”).

The lawsuit alleged that the Registration Statements and Prospectuses incorporated therein contained material misstatements and omissions in violation of Sections 11, 12 and 15 of the Securities Act of 1933. The Certificates were supported by large pools of mortgage loans generally secured by first liens on residential properties, including conventional, adjustable rate and negative amortization mortgage loans. According to the pleadings, the Registration Statements included false statements and/or omissions about: (i) the underwriting standards purportedly used in connection with the origination of the underlying mortgage loans; (ii) the maximum loan-to-value ratios used to qualify borrowers; (iii) the appraisals of properties underlying the mortgage loans; and (iv) the debt-to-income ratios permitted on the loans. As a result of these misstatements and omissions, the Certificates were secured by assets that had a much greater risk profile than represented in the Registration Statement, and the Nationally Recognized Statistical Ratings Organizations (the “NRSROs” or “Ratings Agencies”) assigned superior credit ratings to the Certificates as a result of Defendants’ failure to disclose the underwriting defects and appraisal manipulations.

However, by late 2008, the amount of uncollectible mortgage loans securing the Certificates began to be revealed to the public and the Rating Agencies began to put negative watch labels on many Certificate classes, ultimately down-grading many. The delinquency and foreclosure rates of the mortgage loans securing the Certificates had grown both faster and in greater quantity than what would be expected for mortgage loans of the types described in the Prospectus Supplements. As a result, the Certificates had declined precipitously in value.

This class action posed several substantial challenges to obtaining relief for the Class. For instance, Lead Counsel had to file a motion for leave to amend the then-current complaint and oppose Defendants’ motions for reconsideration based on changing law in the Second Circuit. In particular, Lead Counsel had to adapt to new rulings in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), which significantly altered the law on issues of standing, and Police and Fire Retirement System of the City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013) (“Indymac”), which resolved unsettled law on the application of the Securities Act’s statue of repose. Due to changing case law as well as arguments and defenses set forth by the parties, Lead Counsel filed two amended complaints, opposed two rounds of motion to dismiss briefing from Defendants, and, together with Defendants, submitted nine additional letter briefs to draw the Court’s attention to eleven decisions that were relevant to issues raised in the parties’ briefing and also submitted supplemental briefing to address new issues that arose in response to changing precedent post-IndyMac. After this substantial briefing, on March 30, 2012, the Court granted in part and denied in part Defendants’ second motion to dismiss Lead Plaintiffs’ claims.

Eventually Lead Plaintiffs and Defendants began exploring potential settlement. In connection with those discussions, the parties agreed to exchange certain information that likely otherwise would have been available to Lead Plaintiffs during discovery. Accordingly, Lead Plaintiffs ultimately obtained over 15 million pages of documents and 55 million additional pages of loan files, which required review by Lead Counsel. On October 14, 2014, the parties exchanged and submitted their opening mediation statements and on October 30, 2014 participated in an in-person mediation session. Although the parties reached an impasse at the mediation, settlement negotiations continued and, on November 17, 2014, the parties executed a binding term sheet, which included a cash settlement of $500 million. The Court granted final approval of the settlement on May 27, 2015. Since that time, Lead Counsel has continued to oversee the process of distributing net settlement proceeds to qualifying class members.

Lead Plaintiffs are represented by Steven J. Toll, Daniel S. Sommers, Christopher Lometti, S. Douglas Bunch, and Richard A. Speirs, all of Cohen Milstein.